Indonesian business has criticised the “unfair” exclusion of the country’s critical minerals from a huge package of US subsidies for green technology as it seeks to assuage Washington’s concerns about Chinese dominance of its sprawling resources sector.
Arsjad Rasjid, chair of the Indonesian Chamber of Commerce and Industry (Kadin), which has close ties to the government, said Indonesia could play a crucial role in fulfilling US demand for electric vehicles and batteries. The country has the world’s largest reserves of nickel, a vital material for EV battery production.
The US government is expected in the coming weeks to publish guidance on how battery and EV makers can qualify for tax credits under the Inflation Reduction Act, a landmark climate bill passed last year which includes $370bn in subsidies for clean energy technology.
But experts and people close to the negotiations said batteries containing Indonesia-sourced components may remain ineligible for the full IRA tax credits because the country does not have a free trade agreement with the US and because Chinese companies dominate its nickel industry via joint ventures and mine ownership.
Rasjid said Indonesia was working closely with multinational companies to build separate China and non-China nickel supply chains.
Indonesia is “friend to both” China and the west, he said. “We are supplying to China and supplying to the US and EU. Even on nickel mines, we have to make sure we have a Chinese portfolio and non-Chinese portfolio.”
The US “should look at Indonesia and the Association of Southeast Asian Nations [Asean] as an alternative to China”, added Rasjid, who is also president director of Indonesian conglomerate Indika Energy.
The IRA grants tax credits to companies if a certain percentage of the value of critical minerals in EV batteries is extracted or processed in the US or FTA partner countries.
Indonesia and other countries hope the US will choose to grant members of the Indo-Pacific Economic Framework (IPEF) equivalent status to those with full FTAs with the US.
“We are in discussions about IPEF and the spirit of that agreement is to work together. If the US excludes Asean, it feels really unfair,” Rasjid said. Indonesia is the chair of Asean this year.
Washington and Tokyo on Tuesday signed a trade agreement covering critical minerals for EV batteries that Japan believes is likely to pave the way for tax incentive eligibility, while the US launched talks with the EU on a similar deal this month.
Another provision of the IRA restricts tax benefits if a “foreign entity of concern” extracts, processes or recycles critical minerals or manufactures or assembles components. Experts said the “foreign entity of concern” provision was especially worrying for Jakarta.
From the beginning of 2025, companies wishing to receive the full credits will have to eliminate Chinese critical minerals and components from their supply chains altogether.
“Establishing separate supply chains that rely on Indonesian nickel — one for the US that is IRA-compliant and one for other markets — is not easily implementable given there is no FTA between the USA and Indonesia and the dominance of China in nickel in Indonesia,” said Ross Gregory, executive director of electric vehicle consultancy New Electric Partners.
“The crux is how much leeway will be given in IRA interpretation for external downstream processing of Indonesia source nickel,” he added.
One US mining executive familiar with negotiations said there would “almost certainly” be no deal for Indonesia in the near term, while the interpretation of the “foreign entity of concern” clause was unlikely to be clarified until next month.
Indonesia’s fate also has broader ramifications for EV supply chains in the region. South Korean conglomerates LG, SK Group, Samsung and Hyundai are significant investors in downstream segments including cathodes, battery cells and vehicle production.
LG Energy Solution, the world’s leading non-Chinese battery maker, is building an EV battery factory in Indonesia with carmaker Hyundai.
An LGES-led consortium has also signed an agreement with Indonesian state-owned companies to establish an EV battery supply chain to reduce their dependence on China.
The consortium has invested in an Indonesian nickel mine, which will also help it secure supplies of cobalt, a byproduct of nickel production.
Additional reporting by Aime Williams in Washington
Source: Financial Times